Rhapsody: DRAFT questions
1. In the 1990s, RealPlayer pioneered streaming audio with RealAudio, supplying users with free software and earning revenue from software sales to content providers. Evaluate Microsoft's attack on RealPlayer, the pioneer and dominant incumbent in terms of market share and profitability: a) compare the value proposition of RealAudio and WMP to its users, b) what tools did Microsoft use to gain advantage (and why did these tools confer an advantage)? c) how should/could Real have responded and fended off this attack?
RealAudio was the first software that allowed users to stream real-time audio when they clicked on a Web page link. Users downloaded RealPlayer, the end-user application from Real, for free, and, if needed, paid $29.95 for a premium version. Since there were over 400,000 Web sites used Real’s server software, RealNetworks had a dominant position on streaming audio and video market, and brought customers a huge conveniences.
Microsoft’s Windows Media Player (WMP) did not support RealAudio and Apple’s QuickTime multimedia formats, though its early version did.
As a result, to gain advantage over RealAudio, Microsoft bundled the server software that delivered Windows Media-formatted content for free into its Windows NT server software. Because more than 90% of PC was using Microsoft’s Windows OS, and customers could stream content by WMP easily, it decreased the users’ demand of RealAudio, and the quantity of online content providers that used Real’s standards, reducing RealNetworks’ revenue since 70% of Real’s revenue came from online content providers for server software and related services required to digitize and stream audio and video.
To fend off Microsoft’s attack, and in terms of the burst of Internet bubble in 2000, RealNetworks accelerated its efforts to build consumer subscription services and to develop a format-agnostic media player. In 2000, RealNetworks introduced GoldPass, a subscription service which aggregated content like news reports, Internet radio stations, music videos and premium software. In 2002, RealNetworks launched RealOne Player, which incorporated of not only RealAudio and RealVideo, but also a broad array of proprietary and digital media formats, including Windows Media, QuickTime, MP3 and MPEG-4.
2. Evaluate RealNetwork/Rhapsody's competitive positioning and ability/vulnerability to envelopment attacks vis-a-vis Apple/iTunes, Yahoo Music, and mobile/telecom providers.
Market profile: The market size of projected online music industry kept growing in 2000s. The total industry’s revenue increased from 2 million of downloads and 14 million of subscriptions in 2002, to 3198 million of downloads and 1374 million of subscriptions, approximate 10-fold in 7 years. The growing market attracted many new entrants like Roxio Inc.’s Napster, Buy.com’s Buymusic.com and MusicMatch’ juckebox get into it. Several other companies announced plans to start new music download services, including Microsoft, Sony, Viacom’s MTV Networks and Wal-Mart.
Customer segments: According to the Demographics of Online Music Consumer Segments, most of RealNetwork/Rhapsody’s prospects have a broadband, burned CDs approximately more than 3 pieces per month, downloaded over 10 songs every 30 days, and agreed with “people should be able to download music for free”, which means, they hoped to pay less on downloading songs or burning CDs. They were both quantity sensitive—a considerable demand of downloading songs and quality sensitive—these songs could be burned into CDs
Competitive analysis: Hence, RealNetwork/Rhapsody had a significant advantage on pricing. RealNetworks offered music on a subscription basis through its Rhapsody service, which cost $9.95 per month. The subscribers had unlimited, on-demand access from any PC to all songs in a 450,000 track catalog. In addition, Rhapsody users could burn permanent copies of most of these tracks to CDs for $0.79, rather than the $0.99 charged
